This article was originally posted on Medium in April, 2015..
Facts from Market Failures Past
The article Repeal Obamacare, But Replace It With Free Market Reforms, by JayfromBrooklyn, explores the current healthcare plans, or lack thereof, for each candidate for the Republican nomination for President. But the analysis presented by JayfromBrooklyn, similar to the plans to repeal Obamacare, overlook reality and fact.
First, it is important to recall that the insurance market is a free market. Insurance was always sold as a risk-pooling product to help customers afford both preventative care as well as any unfortunate medical emergency or serious illness. It existed within the same American, capitalist market as most other products before the Affordable Care Act (ACA). But we should take a moment to assess that market on the merits of its outcomes, which include:
- Increasing healthcare costs over the decades before the ACA.
- A high, if not increasing, percent of uninsured Americans.
- A proclivity to deny coverage, especially for pre-existing conditions.
- Poor health outcomes, including obesity, diabetes, and hospital readmission.
- Healthy profits posted by insurance providers.
In economics, this is called a market failure, whereby the market is not able to provide the efficient allocation of a universally demanded good: healthcare. Hence why ACA was passed.
In terms of policy merits, let us assess some components of the ACA:
- Restrictions against denying coverage based on pre-existing conditions
- Free preventative healthcare and wellness visits
- Small business tax credits
- State marketplaces and premium subsidies
- Discounts on prescriptions for seniors
- Coverage for children up to 26 years of age
- A medical loss ratio to ensure insurance providers are using premiums on healthcare and not profit
And some preliminary outcomes, after over 16 million people enrolled:
Analysis of Five “Free Market” Proposals:
Let's assess the motley of healthcare proposals from JayfromBrooklyn's original article.
1. Health Savings Accounts, or HSA’s.
First, these already exist, and ACA does not prevent them in the market. Employers and insurance providers can provide access to both HSA and flexible spending accounts, FSA’s. The main difference is that HSA’s are invested, which means private firms make money from managing the accounts. Free market proponents must not like how FSA’s leave no opportunity to take a slice out of the money people set aside for their healthcare expenses.
2. Enable to purchase insurance over state lines.
The obvious argument in support of this is that it creates a larger, more competitive market with more options: good for the customer, right! But the ACA created markets in each state, in which insurance providers can participate. The actual reason this proposal is attractive is that it would allow insurance providers to move to and offer their products from tax shelter states, lowering their overhead (which is excluded from the medical loss ratio).
There is no “ideological inconsistency between allowing to purchase over state lines, and putting the regulations on the state level”, as JayfromBrooklyn claims, because insurance providers can dodge those regulations by moving to friendlier states, prompting a race to the bottom. But I’m sure that will be worked out.
3. Medical malpractice reforms, to lower costs.
This proposal actually has the most legitimate promise. Litigiousness in medicine is a problem, which leads to expensive malpractice insurance and defensive medicine that raises the costs overall. Something should be done.
However, medical malpractice reform is hardly a free market reform, and in fact, embodies government intervention into a market by regulating a private citizen’s ability to sue. How will that go over among conservatives? Plus, we don’t have to repeal ACA to do this. Congress can pass this reform at anytime.
4. Wellness Programs. Insurance carriers would be allowed to give incentives to people who live healthier lifestyles.
This could be a perverse program that instead punishes those who live unhealthy lifestyles. But if given the benefit of the doubt, the free preventative care and wellness visits under the ACA already provide an incentive: they’re free (or more specifically, covered by the premiums).
5. Enable consumers to pool together and purchase group plans. For example, this would benefit farmers and religious groups.
Farmers and religious institutions can already pool together, in the state marketplaces established by the ACA, which are much larger and better for spreading risk and cost. And why stop at these two conservative archetypes? Why not offer group plans for yacht owners, Cowboys fans, and financial institutions? Corporations, like people, need health insurance, too.
The Platinum Plan
And what about the shining star in the Scott Walker plan? This “simple yet elegant system of tax credits for individual plans”?
Tax credits are subsidies. Please explain how tax credits for individual plans under Walker will provide better and more affordable health coverage than group plans in the state marketplace with subsidized premiums? Individual plans are historically more expensive when based on individual risk. Why take risk-pooling out of a risk-pooling product? Why replace a premium subsidy with a tax credit?
How dare the country feel excessive pride for increasing the access and affordability of healthcare to American men, women, seniors, and children who could not access or afford it before.
If there is any one concept that symbolizes the hubris of the Republican Party, it is that facts do not matter.
It is time for candidates and Congress to step up and propose ideas that improve healthcare in America, but let’s have a marketplace of good ideas.